What Is an ICO?

ICO stands for 'Initial Coin Offering' and is an event where proprietary tokens are distributed to investors. Comparisons are often made with IPOs, however there are key differences between the two.

ICOs Explained

“ICO” stands for “Initial Coin Offering”. In the world of blockchains and cryptocurrencies, the ICO occurs when a blockchain startup first sells its coins to the public. Buyers trade well-established cryptocurrencies, like Bitcoin and Ethereum, for the new coins sold through the ICO. Coins purchased at ICO are typically (though not always) cheaper than that for which they will be sold when the coin becomes available in online exchanges, where cryptocurrencies are traded.

This is how an ICO Works

ICOs are typically conducted by digital service companies which use blockchain as a foundation of their proprietary technology. Effectively unregulated in the United States and much of the rest of the world, ICOs need only be organized and announced by the companies preparing to perform them. The ICO is then advertised through various media.

Interested parties express interest in buying coins through the upcoming ICO by submitting an email address, a Bitcoin address, or other information. Once accepted (some regional ICOs are more restrictive about accepting certain investors than others), a user waits for the ICO to begin, sends payment for a specific number of coins, and waits for these coins to be sent to their ICO wallet address.

The company performing the ICO releases coins according to a schedule advertised in advance. Funds received from buyers during the ICO are typically used to fund project development, pay employees, pay bounties, and for various other purposes. Following the ICO, the parent company’s technology may or may not be in a useable form, but the coins distributed through the coin offering will be publicly tradable from this point on.

Understanding Crowdsales & Pre-Sales

An ICO may offer coins in two (or more) distinct stages, typically called a “Pre-Sale” and a subsequent “Crowdsale”. Not all ICOs will feature a Pre-Sale.

During a Pre-Sale, the ICO company may offer a limited number of coins at a discounted rate to investors and early adopters. The Pre-Sale is typically a period of a few days to a few weeks, but it can be longer or shorter. It serves both to reward a blockchain company’s first interested parties, and to build anticipation for the upcoming crowdsale. Pre-Sales are typically “capped”, allowing only a limited number of investors, and by making available only a small percentage of the coins that will be sold throughout the course of the whole ICO.

The Crowd Sale is the period during which coins are made available to all registered investors. A Crowd Sale may be conducted over hours, weeks, or months. New investors may be accepted during the ICO, or sales may be limited to those who registered prior to the start of the ICO.

These ICO stages are not strict, binding, or consistent. ICOs vary in their organizational structure according to the discretion of the company conducting the ICO.

ICO vs. IPO (Initial Coin Offering & Initial Public Offering)

An Initial Coin Offering is a fundraising model employed within the blockchain industry. The product sold through the ICO is a digital coin or token, which typically has some utility within the technology sold or being developed by the company conducting the ICO. Coins are (almost always) not the same thing as stock in the company. They are a currency, the value of which is related to the success of the blockchain company. The coin also has trading value in the general market, with price fluctuation factors which may not be directly related to the company conducting the ICO.

An IPO (or “Initial Public Offering”) is a traditional way for a corporation to fund development. Typically, a company will enter IPO well after it has already achieved some success and international recognition. An IPO is an issuance of stock. Investors who buy the stock acquire real equity in the company conducting the IPO (unlike ICO investors). IPOs have been conducted for many decades and are well regulated in all nations in which they are conducted.

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that carry a highlevel of risk which may result in the total loss of your invested capital.
Each ICO is unique and entails unique risks. Be aware that past performance is no guarantee
of future performance, that business plans and proposed networks (white papers) are subject
to change and may not be implemented as described or at all and that tokens may have very low
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